Few business owners enjoy breaking the news of an upcoming price increase. However, when you own a business you have to deal with ever-increasing costs. Although inflation is an unpleasant part of life, it is still part of life.
Price increases are inevitable for a sustainable business. If you want to stay afloat, you’ll have to do them – and regularly. Read on for some tips on how to determine how much you should raise your prices.
The type of business you run will determine how much it costs to stay in business. If you’re service-based, you will need to consider what it takes to keep your employees. You’re not likely to deter your customers by increasing prices if you have great people who deliver a service they value.
On the other hand, if your business sells physical products, there’s more to the equation. You have to determine how much more it’s costing you to provide the product. Then, calculate how much more you need to charge to get the same amount of earnings you were before.
No matter what type of business you run, it truly is a numbers game. You’ve got to stay profitable to continue providing goods or services. So calculate the difference and raise your prices accordingly.
There are plenty of other things contributing to profits lately, such as supply chain issues and record low unemployment. When considering a price increase, take a look at your bottom line. Did you make more money this year, or less? If you’re like a lot of businesses, the answer will likely be less.
Delve into your numbers to understand how much money you’re making, and how much money you would like to be making. Plan your price increases so that you can get from point A to point B.
When it comes to shrinking the gap, consider whether you’d rather do one large price increase, or several small price increases. If you need cash right away, you might be tempted to just do one big increase and get it over with. Beware, however, that this tactic has the potential to scare off customers and send them to your competitors in search of a better price.
Weigh the potential loss of customers against the revenue from a price increase. Ideally, the increase will cover the few customers who might go elsewhere.
No matter how you do it, make sure you communicate your intentions kindly and clearly. If you have a loyal customer base, they will likely understand and continue coming to you.
See what your competitors are doing
Do your research to find out what your competitors are up to and how they’re handling price increases. Check in with them regularly to make sure you’re staying on par. You don’t want to become too cheap or too expensive.
If you don’t raise your prices along with the crowd, you run the risk of becoming the cheapest option. That tends to cause a reputation of having the worst quality. Get too far ahead, and you’ll price yourself out of the market.
Consider the rate of inflation
Once you know how much you need to keep up with costs, maintain your bottom line, and match your competitors, look at the rate of inflation. A good rule of thumb is to increase your prices by 5-10% yearly to keep your real earnings the same. However, it’s been a wild year inflation-wise and this percentage may vary.
It can be intimidating to raise your prices because you don’t want to lose customers. However, if you don’t stay on top of it, you risk losing profits or in the worst case scenario, your business. Do your research to make sure your price increases are fair and communicate them well. That way, you can continue to provide excellent services and products to your customers for years to come.